UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2016
OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 0-20293
UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
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| |
VIRGINIA | 54-1598552 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
1051 East Cary Street
Suite 1200
Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
(804) 633-5031
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ý | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares of common stock outstanding as of August 1, 2016 was 43,533,044.
UNION BANKSHARES CORPORATION
FORM 10-Q
INDEX
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ITEM | | | PAGE |
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Item 1. | | | |
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Item 2. | | | |
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Item 3. | | | |
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Item 4. | | | |
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Item 1. | | | |
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Item 1A. | | | |
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Item 2. | | | |
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Item 6. | | | |
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ii
Glossary of Acronyms
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AFS | – | Available for sale |
ALCO | – | Asset Liability Committee |
ALL | – | Allowance for loan losses |
ASC | – | Accounting Standards Codification |
ASU | – | Accounting Standards Update |
ATM | – | Automated teller machine |
the Bank | – | Union Bank & Trust |
bps | – | Basis points |
the Company | – | Union Bankshares Corporation |
Dodd-Frank Act | – | Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 |
EPS | – | Earnings per share |
Exchange Act | – | Securities Exchange Act of 1934 |
FASB | – | Financial Accounting Standards Board |
FDIC | – | Federal Deposit Insurance Corporation |
Federal Reserve | – | Board of Governors of the Federal Reserve System |
Federal Reserve Bank | – | Federal Reserve Bank of Richmond |
FHLB | – | Federal Home Loan Bank of Atlanta |
U.S. GAAP or GAAP | – | Accounting principles generally accepted in the United States |
HELOC | – | Home equity line of credit |
HTM | – | Held to maturity |
LIBOR | – | London Interbank Offered Rate |
NPA | – | Nonperforming assets |
ODCM | – | Old Dominion Capital Management, Inc. |
OREO | – | Other real estate owned |
OTTI | – | Other than temporary impairment |
PCI | – | Purchased credit impaired |
StellarOne | – | StellarOne Corporation |
TDR | – | Troubled debt restructuring |
UMG | – | Union Mortgage Group, Inc. |
PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data) |
| | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| (Unaudited) | | (Audited) |
ASSETS | |
| | |
|
Cash and cash equivalents: | |
| | |
|
Cash and due from banks | $ | 128,896 |
| | $ | 111,323 |
|
Interest-bearing deposits in other banks | 87,887 |
| | 29,670 |
|
Federal funds sold | 251 |
| | 1,667 |
|
Total cash and cash equivalents | 217,034 |
| | 142,660 |
|
Securities available for sale, at fair value | 949,663 |
| | 903,292 |
|
Securities held to maturity, at carrying value | 202,917 |
| | 205,374 |
|
Restricted stock, at cost | 62,206 |
| | 51,828 |
|
Loans held for sale | 38,114 |
| | 36,030 |
|
Loans held for investment, net of deferred fees and costs | 5,941,098 |
| | 5,671,462 |
|
Less allowance for loan losses | 35,074 |
| | 34,047 |
|
Net loans held for investment | 5,906,024 |
| | 5,637,415 |
|
Premises and equipment, net | 124,032 |
| | 126,028 |
|
Other real estate owned, net of valuation allowance | 13,381 |
| | 15,299 |
|
Core deposit intangibles, net | 19,685 |
| | 23,310 |
|
Goodwill | 297,659 |
| | 293,522 |
|
Bank owned life insurance | 176,413 |
| | 173,687 |
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Other assets | 93,433 |
| | 84,846 |
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Total assets | $ | 8,100,561 |
| | $ | 7,693,291 |
|
LIABILITIES | |
| | |
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Noninterest-bearing demand deposits | $ | 1,392,734 |
| | $ | 1,372,937 |
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Interest-bearing deposits | 4,703,092 |
| | 4,590,999 |
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Total deposits | 6,095,826 |
| | 5,963,936 |
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Securities sold under agreements to repurchase | 121,262 |
| | 84,977 |
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Other short-term borrowings | 557,000 |
| | 304,000 |
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Long-term borrowings | 274,547 |
| | 291,198 |
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Other liabilities | 62,725 |
| | 53,813 |
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Total liabilities | 7,111,360 |
| | 6,697,924 |
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Commitments and contingencies (Note 6) |
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| |
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STOCKHOLDERS' EQUITY | |
| | |
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Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 43,619,867 shares and 44,785,674 shares, respectively. | 57,537 |
| | 59,159 |
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Additional paid-in capital | 605,018 |
| | 631,822 |
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Retained earnings | 317,747 |
| | 298,134 |
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Accumulated other comprehensive income | 8,899 |
| | 6,252 |
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Total stockholders' equity | 989,201 |
| | 995,367 |
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Total liabilities and stockholders' equity | $ | 8,100,561 |
| | $ | 7,693,291 |
|
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except share data) |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2016 | | June 30, 2015 | | June 30, 2016 | | June 30, 2015 |
Interest and dividend income: | | | | | |
| | |
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Interest and fees on loans | $ | 64,747 |
| | $ | 62,604 |
| | $ | 127,694 |
| | $ | 123,057 |
|
Interest on deposits in other banks | 65 |
| | 24 |
| | 112 |
| | 41 |
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Interest and dividends on securities: | | | | | |
| | |
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Taxable | 4,510 |
| | 3,860 |
| | 8,826 |
| | 7,667 |
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Nontaxable | 3,459 |
| | 3,366 |
| | 6,898 |
| | 6,690 |
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Total interest and dividend income | 72,781 |
| | 69,854 |
| | 143,530 |
| | 137,455 |
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Interest expense: | | | | | |
| | |
|
Interest on deposits | 4,197 |
| | 3,680 |
| | 8,393 |
| | 7,000 |
|
Interest on federal funds purchased | 2 |
| | 4 |
| | 3 |
| | 5 |
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Interest on short-term borrowings | 708 |
| | 255 |
| | 1,329 |
| | 505 |
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Interest on long-term borrowings | 2,098 |
| | 2,099 |
| | 4,298 |
| | 4,160 |
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Total interest expense | 7,005 |
| | 6,038 |
| | 14,023 |
| | 11,670 |
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| | | | | | | |
Net interest income | 65,776 |
| | 63,816 |
| | 129,507 |
| | 125,785 |
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Provision for credit losses | 2,300 |
| | 3,749 |
| | 4,904 |
| | 5,499 |
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Net interest income after provision for credit losses | 63,476 |
| | 60,067 |
| | 124,603 |
| | 120,286 |
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| | | | | | | |
Noninterest income: | | | | | |
| | |
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Service charges on deposit accounts | 4,754 |
| | 4,622 |
| | 9,488 |
| | 8,835 |
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Other service charges and fees | 4,418 |
| | 4,051 |
| | 8,574 |
| | 7,634 |
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Fiduciary and asset management fees | 2,333 |
| | 2,312 |
| | 4,471 |
| | 4,531 |
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Mortgage banking income, net | 2,972 |
| | 2,574 |
| | 5,117 |
| | 4,952 |
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Gains on securities transactions, net | 3 |
| | 404 |
| | 146 |
| | 597 |
|
Bank owned life insurance income | 1,361 |
| | 1,134 |
| | 2,734 |
| | 2,269 |
|
Other operating income | 2,152 |
| | 1,115 |
| | 3,377 |
| | 2,448 |
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Total noninterest income | 17,993 |
| | 16,212 |
| | 33,907 |
| | 31,266 |
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Noninterest expenses: | | | | | |
| | |
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Salaries and benefits | 28,519 |
| | 25,561 |
| | 56,567 |
| | 53,052 |
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Occupancy expenses | 4,809 |
| | 5,173 |
| | 9,785 |
| | 10,305 |
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Furniture and equipment expenses | 2,595 |
| | 2,989 |
| | 5,232 |
| | 5,803 |
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Printing, postage, and supplies | 1,280 |
| | 1,408 |
| | 2,419 |
| | 2,779 |
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Communications expense | 927 |
| | 1,143 |
| | 2,016 |
| | 2,322 |
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Technology and data processing | 3,608 |
| | 3,216 |
| | 7,422 |
| | 6,471 |
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Professional services | 2,548 |
| | 1,669 |
| | 4,537 |
| | 3,017 |
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Marketing and advertising expense | 1,924 |
| | 2,372 |
| | 3,863 |
| | 4,060 |
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FDIC assessment premiums and other insurance | 1,379 |
| | 1,280 |
| | 2,741 |
| | 2,679 |
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Other taxes | 1,607 |
| | 1,554 |
| | 3,225 |
| | 3,105 |
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Loan-related expenses | 855 |
| | 687 |
| | 1,454 |
| | 1,371 |
|
OREO and credit-related expenses | 894 |
| | 1,965 |
| | 1,463 |
| | 3,152 |
|
Amortization of intangible assets | 1,745 |
| | 2,138 |
| | 3,625 |
| | 4,361 |
|
Training and other personnel costs | 905 |
| | 912 |
| | 1,649 |
| | 1,633 |
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Other expenses | 1,656 |
| | 3,174 |
| | 3,525 |
| | 4,971 |
|
Total noninterest expenses | 55,251 |
| | 55,241 |
| | 109,523 |
| | 109,081 |
|
| | | | | | | |
Income before income taxes | 26,218 |
| | 21,038 |
| | 48,987 |
| | 42,471 |
|
Income tax expense | 6,881 |
| | 5,690 |
| | 12,689 |
| | 11,422 |
|
Net income | $ | 19,337 |
| | $ | 15,348 |
| | $ | 36,298 |
| | $ | 31,049 |
|
Basic earnings per common share | $ | 0.44 |
| | $ | 0.34 |
| | $ | 0.82 |
| | $ | 0.69 |
|
Diluted earnings per common share | $ | 0.44 |
| | $ | 0.34 |
| | $ | 0.82 |
| | $ | 0.69 |
|
Dividends declared per common share | $ | 0.19 |
| | $ | 0.17 |
| | $ | 0.38 |
| | $ | 0.32 |
|
Basic weighted average number of common shares outstanding | 43,746,583 |
| | 45,128,698 |
| | 43,998,929 |
| | 45,117,396 |
|
Diluted weighted average number of common shares outstanding | 43,824,183 |
| | 45,209,814 |
| | 44,075,706 |
| | 45,198,727 |
|
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in thousands)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | |
Net income | $ | 19,337 |
| | $ | 15,348 |
| | $ | 36,298 |
| | $ | 31,049 |
|
Other comprehensive income (loss): | |
| | |
| | |
| | |
|
Cash flow hedges: | |
| | |
| | |
| | |
|
Change in fair value of cash flow hedges | (1,007 | ) | | 1,809 |
| | (3,688 | ) | | 319 |
|
Reclassification adjustment for losses (gains) included in net income (net of tax, $74 and $22 for the three months and $150 and $169 for the six months ended June 30, 2016 and 2015, respectively) | 138 |
| | 41 |
| | 279 |
| | 313 |
|
AFS securities: | |
| | |
| | |
| | |
|
Unrealized holding gains (losses) arising during period (net of tax, $1,991 and $3,686 for the three months and $3,624 and $1,649 for the six months ended June 30, 2016 and 2015, respectively) | 3,698 |
| | (6,845 | ) | | 6,730 |
| | (3,062 | ) |
Reclassification adjustment for losses (gains) included in net income (net of tax, $1 and $142 for the three months and $51 and $209 for the six months ended June 30, 2016 and 2015, respectively) | (2 | ) | | (263 | ) | | (95 | ) | | (388 | ) |
HTM securities: | |
| | |
| | |
| | |
|
Accretion of unrealized gain for AFS securities transferred to HTM (net of tax, $155 and $112 for the three months and $312 and $112 for the six months ended June 30, 2016 and 2015, respectively) | (287 | ) | | (208 | ) | | (579 | ) | | (208 | ) |
Other comprehensive income (loss) | 2,540 |
| | (5,466 | ) | | 2,647 |
| | (3,026 | ) |
Comprehensive income | $ | 21,877 |
| | $ | 9,882 |
| | $ | 38,945 |
| | $ | 28,023 |
|
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(Dollars in thousands, except share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| | | | | | | | | |
Balance - December 31, 2014 | $ | 59,795 |
| | $ | 643,443 |
| | $ | 261,676 |
| | $ | 12,255 |
| | $ | 977,169 |
|
Net income - 2015 | |
| | |
| | 31,049 |
| | |
| | 31,049 |
|
Other comprehensive income (net of taxes of $1,801) | |
| | |
| | |
| | (3,026 | ) | | (3,026 | ) |
Dividends on common stock ($0.32 per share) | |
| | |
| | (13,727 | ) | | |
| | (13,727 | ) |
Stock purchased under stock repurchase plan (181,356 shares) | (240 | ) | | (3,890 | ) | | |
| | |
| | (4,130 | ) |
Issuance of common stock under Dividend Reinvestment Plan (33,710 shares) | 45 |
| | 656 |
| | (701 | ) | | |
| | — |
|
Issuance of common stock under Equity Compensation Plans (25,873 shares) | 34 |
| | 386 |
| | |
| | |
| | 420 |
|
Issuance of common stock for services rendered (9,200 shares) | 12 |
| | 188 |
| | |
| | |
| | 200 |
|
Vesting of restricted stock, including tax effects, under Equity Compensation Plans (20,049 shares) | 26 |
| | (250 | ) | | |
| | |
| | (224 | ) |
Stock-based compensation expense | |
| | 403 |
| | |
| | |
| | 403 |
|
Balance - June 30, 2015 | $ | 59,672 |
| | $ | 640,936 |
| | $ | 278,297 |
| | $ | 9,229 |
| | $ | 988,134 |
|
| | | | | | | | | |
Balance - December 31, 2015 | $ | 59,159 |
| | $ | 631,822 |
| | $ | 298,134 |
| | $ | 6,252 |
| | $ | 995,367 |
|
Net income - 2016 | |
| | |
| | 36,298 |
| | |
| | 36,298 |
|
Other comprehensive income (net of taxes of $3,411) | |
| | |
| | |
| | 2,647 |
| | 2,647 |
|
Issuance of common stock in regard to acquisition (17,232 shares) | 23 |
| | 430 |
| | | | | | 453 |
|
Dividends on common stock ($0.38 per share) | |
| | |
| | (16,685 | ) | | |
| | (16,685 | ) |
Stock purchased under stock repurchase plan (1,312,556 shares) | (1,747 | ) | | (28,943 | ) | | |
| | |
| | (30,690 | ) |
Issuance of common stock under Equity Compensation Plans (34,227 shares) | 46 |
| | 436 |
| | |
| | |
| | 482 |
|
Issuance of common stock for services rendered (9,552 shares) | 13 |
| | 227 |
| | |
| | |
| | 240 |
|
Vesting of restricted stock, including tax effects, under Equity Compensation Plans (31,993 shares) | 43 |
| | (441 | ) | | |
| | |
| | (398 | ) |
Stock-based compensation expense | |
| | 1,487 |
| | |
| | |
| | 1,487 |
|
Balance - June 30, 2016 | $ | 57,537 |
| | $ | 605,018 |
| | $ | 317,747 |
| | $ | 8,899 |
| | $ | 989,201 |
|
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(Dollars in thousands)
|
| | | | | | | |
| 2016 | | 2015 |
Operating activities: | |
| | |
|
Net income | $ | 36,298 |
| | $ | 31,049 |
|
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities: | |
| | |
|
Depreciation of premises and equipment | 4,983 |
| | 5,374 |
|
Writedown of OREO | 400 |
| | 1,300 |
|
Amortization, net | 5,915 |
| | 6,946 |
|
Amortization (accretion) related to acquisition, net | 1,077 |
| | 705 |
|
Provision for credit losses | 4,904 |
| | 5,499 |
|
Losses (gains) on securities transactions, net | (146 | ) | | (597 | ) |
Bank owned life insurance income | (2,734 | ) | | (2,269 | ) |
Decrease (increase) in loans held for sale, net | (2,084 | ) | | 3,069 |
|
Losses (gains) on sales of other real estate owned, net | (1 | ) | | 100 |
|
Losses (gains) on sales of premises, net | 72 |
| | 74 |
|
Stock-based compensation expenses | 1,487 |
| | 403 |
|
Issuance of common stock for services | 240 |
| | 200 |
|
Net decrease (increase) in other assets | (8,549 | ) | | (530 | ) |
Net increase (decrease) in other liabilities | 1,796 |
| | (11,213 | ) |
Net cash and cash equivalents provided by (used in) operating activities | 43,658 |
| | 40,110 |
|
Investing activities: | |
| | |
|
Purchases of securities available for sale | (122,690 | ) | | (122,049 | ) |
Proceeds from sales of securities available for sale | 15,424 |
| | 58,157 |
|
Proceeds from maturities, calls and paydowns of securities available for sale | 56,414 |
| | 70,086 |
|
Proceeds from maturities, calls and paydowns of securities held to maturity | 610 |
| | — |
|
Net decrease (increase) in loans held for investment | (271,689 | ) | | (168,449 | ) |
Net decrease (increase) in premises and equipment | (3,059 | ) | | (3,284 | ) |
Proceeds from sales of other real estate owned | 2,138 |
| | 5,609 |
|
Improvements to other real estate owned | — |
| | (299 | ) |
Cash paid for equity-method investments | — |
| | (355 | ) |
Cash paid in acquisition | (4,077 | ) | | — |
|
Cash acquired in acquisitions | 207 |
| | — |
|
Net cash and cash equivalents provided by (used in) investing activities | (326,722 | ) | | (160,584 | ) |
Financing activities: | |
| | |
|
Net increase (decrease) in noninterest-bearing deposits | 19,797 |
| | 90,298 |
|
Net increase (decrease) in interest-bearing deposits | 112,093 |
| | 57,096 |
|
Net increase (decrease) in short-term borrowings | 289,285 |
| | (6,713 | ) |
Net increase (decrease) in long-term borrowings | (16,446 | ) | | 1,027 |
|
Cash dividends paid - common stock | (16,685 | ) | | (13,727 | ) |
Repurchase of common stock | (30,690 | ) | | (4,130 | ) |
Issuance of common stock | 482 |
| | 420 |
|
Vesting of restricted stock, including tax effects | (398 | ) | | (224 | ) |
Net cash and cash equivalents provided by (used in) financing activities | 357,438 |
| | 124,047 |
|
Increase (decrease) in cash and cash equivalents | 74,374 |
| | 3,573 |
|
Cash and cash equivalents at beginning of the period | 142,660 |
| | 133,260 |
|
Cash and cash equivalents at end of the period | $ | 217,034 |
| | $ | 136,833 |
|
Supplemental Disclosure of Cash Flow Information | |
| | |
|
Cash payments for: | |
| | |
|
Interest | $ | 14,212 |
| | $ | 13,784 |
|
Income taxes | 15,800 |
| | 12,400 |
|
Supplemental schedule of noncash investing and financing activities | |
| | |
|
Unrealized (losses) gains on securities available for sale | $ | 10,208 |
| | $ | (5,308 | ) |
Transfer from securities available for sale to securities held to maturity | — |
| | 201,822 |
|
Changes in fair value of interest rate swap loss | (3,409 | ) | | 632 |
|
Transfers between loans and other real estate owned | 619 |
| | 412 |
|
Transfers from bank premises to other real estate owned | — |
| | 402 |
|
Issuance of common stock in exchange for net assets in acquisition | 453 |
| | — |
|
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.
These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2015 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.
Business Combinations
On May 31, 2016, the Bank completed its acquisition of ODCM, a Charlottesville, Virginia based registered investment advisor with nearly $300.0 million in assets under management. The acquisition date fair value of consideration transferred totaled $9.1 million, which consisted of $4.1 million cash, $0.5 million stock, and the remainder being contingent on achieving certain performance metrics. The contingent consideration is carried at fair value and is reported as a component of “Other Liabilities” in the Consolidated Balance Sheet. The fair value of this liability will be assessed at each reporting period.
In connection with the transaction, the Company recorded $4.1 million in goodwill and $3.8 million of amortizable assets which primarily relate to the value of customer relationships. The Company currently estimates that these other intangibles assets will be amortized over 10 years using a straight-line method. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition.
Loans
The Company originates commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by commercial and residential real estate loans (including acquisition and development loans and residential construction loans) throughout its market area. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in those markets, as well as other factors.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.
As of January 1, 2016, the Company enhanced the loan portfolio segmentation to better align with how the Company manages credit risk and to better align with industry practice. Below is a summary of the new loan segmentation.
Construction and Land Development – construction loans generally made to commercial and residential builders for specific construction projects. The successful repayment of these types of loans is generally dependent upon (a) a commitment for permanent financing from the Company, or (b) from the sale of the constructed property. These loans carry more risk than both types of commercial real estate term loans due to the dynamics of construction projects, changes in interest rates, the long-term financing market, and state and local government regulations. As in commercial real estate term lending, the Company manages risk by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations to any one business or industry.
Also, included in this category are loans generally made to residential home builders to support their lot and home inventory needs. Repayment relies upon the successful performance of the underlying residential real estate project. This type of lending carries a higher level of risk as compared to other commercial lending. This class of lending manages risks related to residential
real estate market conditions, a functioning first and secondary market in which to sell residential properties, and the borrower’s ability to manage inventory and run projects. The Company manages this risk by lending to experienced builders and developers, by using specific underwriting policies and procedures for these types of loans, and by avoiding excessive concentrations with any particular customer or geographic region.
Commercial Real Estate – Owner Occupied - term loans made to support owner occupied real estate properties that rely upon the successful operation of the business occupying the property for repayment. General market conditions and economic activity may affect these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by avoiding concentrations to any one business or industry.
Commercial Real Estate – Non-Owner Occupied - term loans typically made to borrowers to support income producing properties that rely upon the successful operation of the property for repayment. General market conditions and economic activity may impact the performance of these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by diversifying the lending to various lines of businesses, such as retail, office, office warehouse, and hotel as well as avoiding concentrations to any one business or industry.
Residential 1-4 Family – loans generally made to both commercial and residential borrowers. Mortgage loan portfolios carry risks associated with the creditworthiness of the borrower or the tenant and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, experienced underwriting, requiring standards for appraisers, and not making subprime loans.
Multifamily Real Estate – loans made to real estate investors to support permanent financing for multifamily residential income producing properties that rely on the successful operation of the property for repayment. This management mainly involves property maintenance and collection of rents due from tenants. This type of lending carries a lower level of risk as compared to other commercial lending. In addition, underwriting requirements for multifamily properties are stricter than for other non-owner-occupied property types. The Company manages this risk by avoiding concentrations with any particular customer.
Commercial and Industrial – loans generally made to support the Company’s borrowers’ need for equipment/vehicle purchases and other short-term or seasonal cash flow needs. Repayment relies upon the successful operation of the business. This type of lending carries a lower level of commercial credit risk as compared to other commercial lending. The Company manages this risk by using general underwriting policies and procedures for these types of loans and by avoiding concentrations to any one business or industry.
HELOC – the consumer HELOC portfolio carries risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, experienced underwriting, requiring standards for appraisers, and not making subprime loans.
Auto – the consumer indirect auto lending portfolio generally carries certain risks associated with the values of the collateral that management must mitigate. The Company focuses its indirect auto lending on one to two year old used vehicles where substantial depreciation has already occurred thereby minimizing the risk of significant loss of collateral values in the future. This type of lending places reliance on computer-based loan approval systems to supplement other underwriting standards.
Consumer and all other - portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt to income ratios, and minimum borrower credit scores. Also included in this category are loans that generally support small business lines of credit and agricultural lending neither of which are a material source of business for the Company.
Affordable Housing Entities
The Company invests in private investment funds that make equity investments in multifamily affordable housing properties that provide affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. For the three and six months ended June 30, 2016, the Company recognized amortization of $130,000 and $260,000, respectively, and tax credits of $210,000 and $420,000, respectively, associated with these investments within “Income tax expense” on the Company’s Consolidated Statements of Income. For the three and six months ended June 30, 2015, the Company recognized amortization of $104,000 and $279,000, respectively, and tax credits of $170,000 and $427,000, respectively. The carrying value of the Company’s investments in these qualified affordable housing projects was $8.1 million and $8.5 million as of June 30, 2016 and December 31, 2015, respectively. The Company recorded a liability of $5.3 million for the related unfunded commitments as of June 30, 2016, which are expected to be paid from 2016 to 2019.
Adoption of New Accounting Standards
In February 2015, the FASB issued revised guidance to simplify the consolidation assessment required to evaluate whether organizations should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures. The guidance also removed the indefinite deferral of specialized guidance for certain investment funds. The Company adopted ASU No. 2015-02, “Amendments to the Consolidation Analysis” during the first quarter of 2016. The adoption of ASU 2015-02 did not have a material impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements
In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. The ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is only permitted for the provision related to instrument-specific credit risk. The Company is currently assessing the impact ASU 2016-01 will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU requires lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to today’s accounting. The guidance also eliminates the real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the impact ASU 2016-02 will have on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” This ASU clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a termination of the derivative instrument or a change in a critical term of the hedging relationship. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-05 to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments.” This ASU clarifies that in assessing whether an embedded contingent put or call option is clearly and closely related to the debt host, an entity is required to perform only the four-step decision sequence in ASC 815-15-25-42 (as amended by the ASU). The entity does not have to separately assess whether the event that triggers its ability to exercise the contingent option is itself indexed only to interest rates or credit risk. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-06 to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-07, “Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” This ASU simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively and early adoption is permitted. The Company does not expect the adoption of ASU 2016-07 to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” This ASU amends the principal-versus-agent implementation guidance and illustrations in the FASB’s new revenue standard (ASU 2014-09) and clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. The ASU has
the same effective date as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14 delaying the effective date to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017). In addition, entities are required to adopt the ASU by using the same transition method they used to adopt the new revenue standard. The Company is currently assessing the impact ASU 2016-08 will have on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted; however, if the Company elects to early adopt, then all amendments must be adopted in the same period. The Company is currently assessing the impact ASU 2016-09 will have on its consolidated financial statements.
In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” This ASU amends certain aspects of the FASB’s new revenue standard, specifically the standard’s guidance on identifying performance obligations and the implementation guidance on licensing. The amendments in this update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers, which is not yet effective. The ASU has the same effective date as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14). The Company is currently assessing the impact ASU 2016-10 will have on its consolidated financial statements.
In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” This ASU amends certain aspects of the FASB's new revenue standard to reduce the potential for diversity in practice at the initial application of Topic 606 by entities with transactions that fall into the scope of this guidance, as well as reducing the cost and complexity of applying Topic 606 at the transition date and on a continual basis. These amendments affect ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), that is not yet effective. The Company is currently assessing the impact ASU 2016-12 will have on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU updates the existing guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and required consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This amendment is effective for fiscal years beginning after December 15, 2019. The Company is currently assessing the impact ASU 2016-13 will have on its consolidated financial statements.
2. SECURITIES
Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of June 30, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| Amortized | | Gross Unrealized | | Estimated |
| Cost | | Gains | | (Losses) | | Fair Value |
June 30, 2016 | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | 258,968 |
| | $ | 13,848 |
| | $ | (30 | ) | | $ | 272,786 |
|
Corporate bonds | 109,757 |
| | 506 |
| | (1,684 | ) | | 108,579 |
|
Mortgage-backed securities | 545,428 |
| | 10,165 |
| | (629 | ) | | 554,964 |
|
Other securities | 13,285 |
| | 49 |
| | — |
| | 13,334 |
|
Total available for sale securities | $ | 927,438 |
| | $ | 24,568 |
| | $ | (2,343 | ) | | $ | 949,663 |
|
| | | | | | | |
December 31, 2015 | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | 257,740 |
| | $ | 10,479 |
| | $ | (140 | ) | | $ | 268,079 |
|
Corporate bonds | 77,628 |
| | 55 |
| | (1,704 | ) | | 75,979 |
|
Mortgage-backed securities | 544,823 |
| | 6,127 |
| | (2,779 | ) | | 548,171 |
|
Other securities | 11,085 |
| | — |
| | (22 | ) | | 11,063 |
|
Total available for sale securities | $ | 891,276 |
| | $ | 16,661 |
| | $ | (4,645 | ) | | $ | 903,292 |
|
The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s available for sale investments with unrealized losses that are not deemed to be other-than-temporarily impaired as of June 30, 2016 and December 31, 2015. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | | More than 12 months | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
June 30, 2016 | |
| | |
| | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | — |
| | $ | — |
| | $ | 631 |
| | $ | (30 | ) | | $ | 631 |
| | $ | (30 | ) |
Mortgage-backed securities | 67,843 |
| | (266 | ) | | 42,840 |
| | (363 | ) | | 110,683 |
| | (629 | ) |
Corporate bonds and other securities | 11,242 |
| | (331 | ) | | 36,250 |
| | (1,353 | ) | | 47,492 |
| | (1,684 | ) |
Total available for sale | $ | 79,085 |
| | $ | (597 | ) | | $ | 79,721 |
| | $ | (1,746 | ) | | $ | 158,806 |
| | $ | (2,343 | ) |
| | | | | | | | | | | |
December 31, 2015 | |
| | |
| | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | 8,114 |
| | $ | (70 | ) | | $ | 4,950 |
| | $ | (70 | ) | | $ | 13,064 |
| | $ | (140 | ) |
Mortgage-backed securities | 287,113 |
| | (2,442 | ) | | 21,660 |
| | (337 | ) | | 308,773 |
| | (2,779 | ) |
Corporate bonds and other securities | 36,157 |
| | (751 | ) | | 19,558 |
| | (975 | ) | | 55,715 |
| | (1,726 | ) |
Total available for sale | $ | 331,384 |
| | $ | (3,263 | ) | | $ | 46,168 |
| | $ | (1,382 | ) | | $ | 377,552 |
| | $ | (4,645 | ) |
As of June 30, 2016, there were $79.7 million, or 21 issues, of individual available for sale securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.7 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds. As of December 31, 2015, there were $46.2 million, or 20 issues, of individual securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.4 million and consisted of municipal obligations, mortgage-backed securities, corporate bonds, and other securities. The Company has determined that these securities are temporarily impaired as of June 30, 2016 and December 31, 2015 for the reasons set out below:
Mortgage-backed securities. This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired. Also, the majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government guarantee.
Obligations of state and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the economic downturn on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
Corporate bonds. The Company’s unrealized losses in corporate debt securities are related to both interest rate fluctuations and ratings downgrades for a limited number of securities. The majority of the securities remain investment grade and the Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
The following table presents the amortized cost and estimated fair value of available for sale securities as of June 30, 2016 and December 31, 2015, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
| | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
Due in one year or less | $ | 11,376 |
| | $ | 11,512 |
| | $ | 8,380 |
| | $ | 8,370 |
|
Due after one year through five years | 101,658 |
| | 104,839 |
| | 65,326 |
| | 66,996 |
|
Due after five years through ten years | 318,124 |
| | 326,477 |
| | 296,864 |
| | 301,920 |
|
Due after ten years | 496,280 |
| | 506,835 |
| | 520,706 |
| | 526,006 |
|
Total securities available for sale | $ | 927,438 |
| | $ | 949,663 |
| | $ | 891,276 |
| | $ | 903,292 |
|
The following table presents the estimated fair value of available for sale securities which were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of June 30, 2016 and December 31, 2015 (dollars in thousands):
|
| | | | | | | |
| June 30, 2016 | | December 31, 2015 |
Public deposits | $ | 183,813 |
| | $ | 184,635 |
|
Repurchase agreements | 122,562 |
| | 126,120 |
|
Other purposes (1) | 23,540 |
| | 26,546 |
|
Total pledged securities | $ | 329,915 |
| | $ | 337,301 |
|
(1) The "Other purposes" category consists of borrowings, derivatives, and accounts held at the Bank.
Held to Maturity
During the second quarter of 2015, the Company transferred securities, which it intends and has the ability to hold until maturity, with a fair value of $201.8 million on the date of transfer, from securities available for sale to securities held to maturity. The Company transferred these securities to held to maturity to reduce the impact of price volatility on capital and in consideration of changes to the regulatory environment. The securities included net pre-tax unrealized gains of $8.1 million at the date of transfer with a remaining balance of $5.9 million as of June 30, 2016.
The Company reports securities held to maturity on the Consolidated Balance Sheets at carrying value. Carrying value is amortized cost which includes any unamortized unrealized gains and losses recognized in accumulated other comprehensive income prior to reclassifying the securities from securities available for sale to securities held to maturity. Investment securities transferred into the held to maturity category from the available for sale category are recorded at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the securities held to maturity. Such unrealized gains/(losses) are accreted over the remaining life of the security with no impact on future net income.
The carrying value, gross unrealized gains and losses, and estimated fair values of securities held to maturity as of June 30, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| Carrying | | Gross Unrealized | | Estimated |
| Value | | Gains | | (Losses) | | Fair Value |
June 30, 2016 | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions (1) | $ | 202,917 |
| | $ | 9,153 |
| | $ | (121 | ) | | $ | 211,949 |
|
| | | | | | | |
December 31, 2015 | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | 205,374 |
| | $ | 5,748 |
| | $ | (1,685 | ) | | $ | 209,437 |
|
(1) The carrying value includes $5.9 million of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.
The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s held to maturity securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of June 30, 2016 and December 31, 2015. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | | More than 12 months | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
June 30, 2016 | |
| | |
| | |
| | |
| | |
| | |
|
Obligations of states and political subdivisions | $ | — |
| | $ | — |
| | $ | 1,148 |
| | $ | (121 | ) | | $ | 1,148 |
| | $ | (121 | ) |
| | | | | | | | | | | |
December 31, 2015 | | | | | | | | | | | |
Obligations of states and political subdivisions | $ | 7,056 |
| | $ | (1,685 | ) | | $ | — |
| | $ | — |
| | $ | 7,056 |
| | $ | (1,685 | ) |
As of June 30, 2016, there were $1.1 million, or 2 issues, of individual held to maturity securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $121,000 and consisted of municipal obligations. The Company has determined that these securities are temporarily impaired as of June 30, 2016 and December 31, 2015 for the reasons set out below:
Obligations of state and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the economic downturn on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before
recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
The following table presents the amortized cost and estimated fair value of held to maturity securities as of June 30, 2016 and December 31, 2015, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
| | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Carrying Value (1) | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
Due in one year or less | $ | 857 |
| | $ | 857 |
| | $ | 1,488 |
| | $ | 1,491 |
|
Due after one year through five years | 18,122 |
| | 18,564 |
| | 4,294 |
| | 4,348 |
|
Due after five years through ten years | 45,802 |
| | 47,469 |
| | 44,736 |
| | 45,501 |
|
Due after ten years | 138,136 |
| | 145,059 |
| | 154,856 |
| | 158,097 |
|
Total securities held to maturity | $ | 202,917 |
| | $ | 211,949 |
| | $ | 205,374 |
| | $ | 209,437 |
|
(1) The carrying value includes $5.9 million of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.
The following table presents the estimated fair value of held to maturity securities which were pledged to secure public deposits as permitted or required by law as of June 30, 2016 and December 31, 2015 (dollars in thousands):
|
| | | | | | | |
| June 30, 2016 | | December 31, 2015 |
Public deposits | $ | 211,949 |
| | $ | 207,140 |
|
Total pledged securities | $ | 211,949 |
| | $ | 207,140 |
|
Restricted Stock, at cost
Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At June 30, 2016 and December 31, 2015, the FHLB required the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of its outstanding capital at both June 30, 2016 and December 31, 2015. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $23.8 million for both June 30, 2016 and December 31, 2015 and FHLB stock in the amount of $38.4 million and $28.0 million as of June 30, 2016 and December 31, 2015, respectively.
Other-Than-Temporary-Impairment
During each quarter, the Company conducts an assessment of the securities portfolio for OTTI consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is other-than-temporary if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the quarter ended June 30, 2016, and in accordance with the guidance, no OTTI was recognized. For the year ended December 31, 2015, the Company determined that a municipal security in the available for sale portfolio incurred credit-related OTTI of $300,000. During the quarter ended March 31, 2016, the municipal security was sold. As a result, the Company recognized an additional loss on sale of the previously written down security.
Realized Gains and Losses
The following table presents the gross realized gains and losses on the sale of securities available for sale and the proceeds from the sale of securities during the three and six months ended June 30, 2016 and 2015 (dollars in thousands). The Company did not sell any investment securities that are held to maturity.
|
| | | | | | | |
| Three Months Ended June 30, 2016 | | Six Months Ended June 30, 2016 |
Realized gains (losses): | |
| | |
|
Gross realized gains | $ | 3 |
| | $ | 242 |
|
Gross realized losses | — |
| | (96 | ) |
Net realized gains | $ | 3 |
| | $ | 146 |
|
| | | |
Proceeds from sales of securities | $ | 892 |
| | $ | 15,424 |
|
|
| | | | | | | |
| Three Months Ended June 30, 2015 | | Six Months Ended June 30, 2015 |
Realized gains (losses): | |
| | |
|
Gross realized gains | $ | 491 |
| | $ | 684 |
|
Gross realized losses | (87 | ) | | (87 | ) |
Net realized gains | $ | 404 |
| | $ | 597 |
|
| | | |
Proceeds from sales of securities | $ | 45,658 |
| | $ | 58,157 |
|
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at their face amount, net of deferred fees and costs, and consist of the following at June 30, 2016 and December 31, 2015 (dollars in thousands):
|
| | | | | | | |
| June 30, 2016 | | December 31, 2015 |
Construction and Land Development | $ | 765,997 |
| | $ | 749,720 |
|
Commercial Real Estate - Owner Occupied | 831,880 |
| | 860,086 |
|
Commercial Real Estate - Non-Owner Occupied | 1,370,745 |
| | 1,270,480 |
|
Multifamily Real Estate | 337,723 |
| | 322,528 |
|
Commercial & Industrial | 469,054 |
| | 435,365 |
|
Residential 1-4 Family | 992,457 |
| | 978,469 |
|
Auto | 244,575 |
| | 234,061 |
|
HELOC | 519,196 |
| | 516,726 |
|
Consumer and all other | 409,471 |
| | 304,027 |
|
Total loans held for investment, net(1) | $ | 5,941,098 |
| | $ | 5,671,462 |
|
(1) Loans, as presented, are net of deferred fees and costs totaling $1.9 million and $3.0 million as of June 30, 2016 and December 31, 2015, respectively.
The following table shows the aging of the Company’s loan portfolio, by segment, at June 30, 2016 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 30-59 Days Past Due | | 60-89 Days Past Due | | Greater than 90 Days and still Accruing | | PCI | | Nonaccrual | | Current | | Total Loans |
Construction and Land Development | $ | 402 |
| | $ | 1,177 |
| | $ | 116 |
| | $ | 5,013 |
| | $ | 1,604 |
| | $ | 757,685 |
| | $ | 765,997 |
|
Commercial Real Estate - Owner Occupied | 912 |
| | — |
| | 439 |
| | 20,692 |
| | 1,661 |
| | 808,176 |
| | 831,880 |
|
Commercial Real Estate - Non-Owner Occupied | 267 |
| | — |
| | 723 |
| | 18,297 |
| | — |
| | 1,351,458 |
| | 1,370,745 |
|
Multifamily Real Estate | — |
| | — |
| | — |
| | 2,092 |
| | — |
| | 335,631 |
| | 337,723 |
|
Commercial & Industrial | 2,464 |
| | 62 |
| | 117 |
| | 1,354 |
| | 263 |
| | 464,794 |
| | 469,054 |
|
Residential 1-4 Family | 5,476 |
| | 5,033 |
| | 1,302 |
| | 17,805 |
| | 5,448 |
| | 957,393 |
| | 992,457 |
|
Auto | 1,282 |
| | 377 |
| | 144 |
| | — |
| | 140 |
| | 242,632 |
| | 244,575 |
|
HELOC | 1,347 |
| | 1,228 |
| | 642 |
| | 1,517 |
| | 1,495 |
| | 512,967 |
| | 519,196 |
|
Consumer and all other | 1,364 |
| | 412 |
| | 50 |
| | 400 |
| | 250 |
| | 406,995 |
| | 409,471 |
|
Total Loans Held For Investment | $ | 13,514 |
| | $ | 8,289 |
| | $ | 3,533 |
| | $ | 67,170 |
| | $ | 10,861 |
| | $ | 5,837,731 |
| | $ | 5,941,098 |
|
The following table shows the aging of the Company’s loan portfolio, by segment, at December 31, 2015 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 30-59 Days Past Due | | 60-89 Days Past Due | | Greater than 90 Days and still Accruing | | PCI | | Nonaccrual | | Current | | Total Loans |
Construction and Land Development | $ | 3,155 |
| | $ | 380 |
| | $ | 128 |
| | $ | 5,986 |
| | $ | 2,113 |
| | $ | 737,958 |
| | $ | 749,720 |
|
Commercial Real Estate - Owner Occupied | 1,714 |
| | 118 |
| | 103 |
| | 27,388 |
| | 3,904 |
| | 826,859 |
| | 860,086 |
|
Commercial Real Estate - Non-Owner Occupied | 771 |
| | — |
| | 723 |
| | 13,519 |
| | 100 |
| | 1,255,367 |
| | 1,270,480 |
|
Multifamily Real Estate | — |
| | — |
| | 272 |
| | 1,555 |
| | — |
| | 320,701 |
| | 322,528 |
|
Commercial & Industrial | 1,056 |
| | 27 |
| | 124 |
| | 1,813 |
| | 429 |
| | 431,916 |
| | 435,365 |
|
Residential 1-4 Family | 15,023 |
| | 6,774 |
| | 3,638 |
| | 21,159 |
| | 3,563 |
| | 928,312 |
| | 978,469 |
|
Auto | 2,312 |
| | 233 |
| | 60 |
| | — |
| | 192 |
| | 231,264 |
| | 234,061 |
|
HELOC | 2,589 |
| | 1,112 |
| | 762 |
| | 1,791 |
| | 1,348 |
| | 509,124 |
| | 516,726 |
|
Consumer and all other | 1,167 |
| | 689 |
| | 19 |
| | 526 |
| | 287 |
| | 301,339 |
| | 304,027 |
|
Total Loans Held For Investment | $ | 27,787 |
| | $ | 9,333 |
| | $ | 5,829 |
| | $ | 73,737 |
| | $ | 11,936 |
| | $ | 5,542,840 |
| | $ | 5,671,462 |
|
The following table shows the PCI loan portfolios, by segment and their delinquency status, at June 30, 2016 (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| 30-89 Days Past Due | | Greater than 90 Days | | Current | | Total |
Construction and Land Development | $ | 3 |
| | $ | 361 |
| | $ | 4,649 |
| | $ | 5,013 |
|
Commercial Real Estate - Owner Occupied | 1,098 |
| | 1,495 |
| | 18,099 |
| | 20,692 |
|
Commercial Real Estate - Non-Owner Occupied | 795 |
| | 171 |
| | 17,331 |
| | 18,297 |
|
Multifamily Real Estate | — |
| | — |
| | 2,092 |
| | 2,092 |
|
Commercial & Industrial | 149 |
| | — |
| | 1,205 |
| | 1,354 |
|
Residential 1-4 Family | 1,014 |
| | 1,213 |
| | 15,578 |
| | 17,805 |
|
HELOC | 137 |
| | 510 |
| | 870 |
| | 1,517 |
|
Consumer and all other | — |
| | — |
| | 400 |
| | 400 |
|
Total | $ | 3,196 |
| | $ | 3,750 |
| | $ | 60,224 |
| | $ | 67,170 |
|
The following table shows the PCI loan portfolios, by segment and their delinquency status, at December 31, 2015 (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| 30-89 Days Past Due | | Greater than 90 Days | | Current | | Total |
Construction and Land Development | $ | 369 |
| | $ | 241 |
| | $ | 5,376 |
| | $ | 5,986 |
|
Commercial Real Estate - Owner Occupied | 1,139 |
| | 1,412 |
| | 24,837 |
| | 27,388 |
|
Commercial Real Estate - Non-Owner Occupied | 755 |
| | 202 |
| | 12,562 |
| | 13,519 |
|
Multifamily Real Estate | — |
| | — |
| | 1,555 |
| | 1,555 |
|
Commercial & Industrial | 209 |
| | 21 |
| | 1,583 |
| | 1,813 |
|
Residential 1-4 Family | 2,143 |
| | 1,923 |
| | 17,093 |
| | 21,159 |
|
HELOC | 410 |
| | 458 |
| | 923 |
| | 1,791 |
|
Consumer and all other | — |
| | — |
| | 526 |
| | 526 |
|
Total | $ | 5,025 |
| | $ | 4,257 |
| | $ | 64,455 |
| | $ | 73,737 |
|
The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s impaired loans, excluding PCI loans related to the StellarOne acquisition, by segment at June 30, 2016 and December 31, 2015 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance |
Loans without a specific allowance | |
| | |
| | |
| | |
| | |
| | |
|
Construction and Land Development | $ | 29,877 |
| | $ | 30,354 |
| | $ | — |
| | $ | 33,250 |
| | $ | 33,731 |
| | $ | — |
|
Commercial Real Estate - Owner Occupied | 11,201 |
| | 11,317 |
| | — |
| | 7,781 |
| | 8,983 |
| | — |
|
Commercial Real Estate - Non-Owner Occupied | 3,993 |
| | 3,993 |
| | — |
| | 5,328 |
| | 5,325 |
| | — |
|
Multifamily Real Estate | 3,777 |
| | 3,777 |
| | — |
| | 3,828 |
| | 3,828 |
| | — |
|
Commercial & Industrial | 1,154 |
| | 1,572 |
| | — |
| | 711 |
| | 951 |
| | — |
|
Residential 1-4 Family | 10,065 |
| | 11,024 |
| | — |
| | 7,564 |
| | 8,829 |
| | — |
|
Auto | — |
| | — |
| | — |
| | 7 |
| | 7 |
| | — |
|
HELOC | 1,900 |
| | 2,046 |
| | — |
| | 1,786 |
| | 2,028 |
| | — |
|
Consumer and all other | 247 |
| | 297 |
| | — |
| | 211 |
| | 211 |
| | — |
|
Total impaired loans without a specific allowance | $ | 62,214 |
| | $ | 64,380 |
| | $ | — |
| | $ | 60,466 |
| | $ | 63,893 |
| | $ | — |
|
| | | | | | | | | | | |
Loans with a specific allowance | |
| | |
| | |
| | |
| | |
| | |
|
Construction and Land Development | $ | 1,833 |
| | $ | 2,234 |
| | $ | 64 |
| | $ | 3,167 |
| | $ | 3,218 |
| | $ | 538 |
|
Commercial Real Estate - Owner Occupied | 2,291 |
| | 2,320 |
| | 49 |
| | 3,237 |
| | 3,239 |
| | 358 |
|
Commercial Real Estate - Non-Owner Occupied | 267 |
| | 267 |
| | 1 |
| | 907 |
| | 907 |
| | 75 |
|
Commercial & Industrial | 1,334 |
| | 1,456 |
| | 47 |
| | 1,952 |
| | 1,949 |
| | 441 |
|
|